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Investments

6 Months Ended

Jun. 30, 2020

Investments, Debt and Equity Securities [Abstract]

Note 4—Investments

Portfolio Composition: Summaries of fixed maturities available for sale by amortized cost, fair value, and allowance for credit losses at June 30, 2020 and December 31, 2019, and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) are as follows. Redeemable preferred stock is included within the corporates by sector.

As noted in Note 1—Significant Accounting Policies, the Company prospectively adopted ASU 2016-13 as of January 1, 2020 for the available-for-sale fixed maturities. Results after January 1, 2020 are presented under ASU 2016-13, while prior periods continue to be reported in accordance with previously applicable GAAP. See additional discussion of the allowance for credit losses later in this note.


	At June 30, 2020
	Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value⁽¹⁾		% of Total Fixed Maturities⁽²⁾
Fixed maturities available for sale:
U.S. Government direct, guaranteed, and government-sponsored enterprises	$	377,555	$	—	$	89,319	$	(58)	$	466,816	2
States, municipalities, and political subdivisions	1,617,951		—		206,554		(478)		1,824,027		9
Foreign governments	33,900		—		2,633		(17)		36,516		—
Corporates, by sector:
Financial	4,303,589		—		798,500		(53,564)		5,048,525		26
Utilities	1,930,929		—		518,495		(1,616)		2,447,808		13
Energy	1,663,051		(32,719)		209,597		(53,861)		1,786,068		9
Other corporate sectors	6,584,590		—		1,294,194		(21,202)		7,857,582		40
Total corporates	14,482,159		(32,719)		2,820,786		(130,243)		17,139,983		88
Collateralized debt obligations	57,031		—		21,988		(9,920)		69,099		—
Other asset-backed securities	129,304		—		2,866		(7,429)		124,741		1
Total fixed maturities	$	16,697,900	$	(32,719)	$	3,144,146	$	(148,145)	$	19,661,182	100

(1)Amount reported in the balance sheet.

(2)At fair value.


	At December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value⁽¹⁾		% of Total Fixed Maturities⁽²⁾
Fixed maturities available for sale:
U.S. Government direct, guaranteed, and government-sponsored enterprises	$	396,079	$	41,737	$	(296)	$	437,520	2
States, municipalities, and political subdivisions	1,559,736		158,546		(626)		1,717,656		9
Foreign governments	25,874		2,073		(396)		27,551		—
Corporates, by sector:
Financial	4,101,917		701,196		(22,307)		4,780,806		25
Utilities	1,937,738		416,114		(1,565)		2,352,287		13
Energy	1,678,969		269,640		(33,725)		1,914,884		10
Other corporate sectors	6,514,677		955,908		(16,765)		7,453,820		40
Total corporates	14,233,301		2,342,858		(74,362)		16,501,797		88
Collateralized debt obligations	56,990		24,298		(7,184)		74,104		—
Other asset-backed securities	143,796		5,094		(371)		148,519		1
Total fixed maturities	$	16,415,776	$	2,574,606	$	(83,235)	$	18,907,147	100

(1)Amount reported in the balance sheet.

(2)At fair value.

A schedule of fixed maturities available for sale by contractual maturity date at June 30, 2020 is shown below on an amortized cost, net of allowance for credit losses basis and on a fair value basis. Actual disposition dates could differ from contractual maturities due to call or prepayment provisions.


	At June 30, 2020
	Amortized Cost, net		Fair Value
Fixed maturities available for sale:
Due in one year or less	$	62,732	$	63,550
Due after one year through five years	745,715		816,256
Due after five years through ten years	1,783,317		2,065,078
Due after ten years through twenty years	5,788,845		7,141,059
Due after twenty years	8,097,882		9,381,016
Mortgage-backed and asset-backed securities	186,690		194,223
	$	16,665,181	$	19,661,182

Analysis of Investment Operations: Net investment income for the three and six month periods ended June 30, 2020 and 2019 is summarized as follows:


	Three Months Ended June 30,									Six Months Ended June 30,
	2020		2019		% Change	2020		2019		% Change
Fixed maturities available for sale	$	217,556	$	215,867	1	$	434,683	$	431,630	1
Policy loans	11,213		10,821		4	22,331		21,457		4
Other long-term investments⁽¹⁾	7,146		3,991		79	11,769		7,379		59
Short-term investments	134		763		(82)	441		1,582		(72)
	236,049		231,442		2	469,224		462,048		2
Less investment expense	(4,481)		(4,017)		12	(8,665)		(7,950)		9
Net investment income	$	231,568	$	227,425	2	$	460,559	$	454,098	1

(1)For the three months ended June 30, 2020 and 2019, the investment funds, accounted for under the fair value option method, recorded $4.5 million and $1.4 million, respectively in net investment income. For the six months ended June 30, 2020 and 2019, the investment funds, accounted for under the fair value option method, recorded $6.5 million and $2.8 million, respectively in net investment income.

Selected information about sales of fixed maturities available for sale is as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Fixed maturities available for sale:
Proceeds from sales⁽¹⁾	$	1,660	$	—	$	52,020	$	34,997
Gross realized gains	—		—		2,642		46
Gross realized losses	(371)		—		(371)		(3,027)

(1)There were no unsettled sales in the periods ended June 30, 2020 and 2019.

An analysis of realized gains (losses) is as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Realized investment gains (losses):
Fixed maturities available for sale:
Sales and other⁽¹⁾	$	5,928	$	2,237	$	10,862	$	5,907

Provision for credit losses	(865)		—		(32,719)		—
Fair value option—change in fair value	(19,434)		2,869		(18,851)		684
Other investments	9,581		48		9,821		(108)
Realized gains (losses) from investments	(4,790)		5,154		(30,887)		6,483



Applicable tax	1,006		(1,082)		6,486		(1,361)
Realized gains (losses), net of tax	$	(3,784)	$	4,072	$	(24,401)	$	5,122

(1)During the three months ended June 30, 2020 and 2019, the Company recorded $80.4 million and $48.3 million of exchanges of fixed maturities (noncash transactions) that resulted in $7.9 million and $2.5 million, respectively in realized gains (losses). During the six months ended June 30, 2020 and 2019, the Company recorded $86.3 million and $117.2 million of exchanges of fixed maturities (noncash transactions) that resulted in $7.9 million and $8.3 million, respectively in realized gains (losses).

Fair Value Measurements: The following tables represent the fair value of fixed maturities measured on a recurring basis at June 30, 2020 and December 31, 2019:


	Fair Value Measurement at June 30, 2020 Using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value
Fixed maturities available for sale
U.S. Government direct, guaranteed, and government-sponsored enterprises	$	—		$	466,816		$	—		$	466,816
States, municipalities, and political subdivisions	—			1,824,027			—			1,824,027
Foreign governments	—			36,516			—			36,516
Corporates, by sector:
Financial	—			4,900,057			148,468			5,048,525
Utilities	—			2,286,065			161,743			2,447,808
Energy	—			1,748,616			37,452			1,786,068
Other corporate sectors	—			7,546,329			311,253			7,857,582
Total corporates	—			16,481,067			658,916			17,139,983
Collateralized debt obligations	—			—			69,099			69,099
Other asset-backed securities	—			111,861			12,880			124,741
Total fixed maturities	$	—		$	18,920,287		$	740,895		$	19,661,182
Percentage of total	—		%	96		%	4		%	100		%


	Fair Value Measurement at December 31, 2019 Using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value
Fixed maturities available for sale
U.S. Government direct, guaranteed, and government-sponsored enterprises	$	—		$	437,520		$	—		$	437,520
States, municipalities, and political subdivisions	—			1,717,656			—			1,717,656
Foreign governments	—			27,551			—			27,551
Corporates, by sector:
Financial	—			4,628,875			151,931			4,780,806
Utilities	—			2,195,539			156,748			2,352,287
Energy	—			1,873,482			41,402			1,914,884
Other corporate sectors	—			7,131,773			322,047			7,453,820
Total corporates	—			15,829,669			672,128			16,501,797
Collateralized debt obligations	—			—			74,104			74,104
Other asset-backed securities	—			135,342			13,177			148,519
Total fixed maturities	$	—		$	18,147,738		$	759,409		$	18,907,147
Percentage of total	—		%	96		%	4		%	100		%

The following tables represent changes in fixed maturities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):


	Analysis of Changes in Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Asset- backed Securities			Collateralized Debt Obligations			Corporates			Total
Balance at January 1, 2020	$	13,177		$	74,104		$	672,128		$	759,409

Included in realized gains / losses	—			—			1,213			1,213
Included in other comprehensive income	(250)			(5,046)			11,765			6,469
Acquisitions	—			—			—			—
Sales	—			—			—			—
Amortization	—			2,275			4			2,279
Other⁽¹⁾	(47)			(2,234)			(26,194)			(28,475)
Transfers into Level 3⁽²⁾	—			—			—			—
Transfers out of Level 3⁽²⁾	—			—			—			—
Balance at June 30, 2020	$	12,880		$	69,099		$	658,916		$	740,895
Percent of total fixed maturities	—		%	1		%	3		%	4		%

(1)Includes capitalized interest, foreign exchange adjustments, and principal repayments.

(2)Considered to be transferred at the end of the period. Transfers into Level 3 occur when observable inputs are no longer available. Transfers out of Level 3 occur when observable inputs become available.


	Analysis of Changes in Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Asset- backed Securities			Collateralized Debt Obligations			Corporates			Total
Balance at January 1, 2019	$	12,982		$	73,369		$	553,471		$	639,822

Included in realized gains / losses	—			—			—			—
Included in other comprehensive income	441			6,306			23,620			30,367
Acquisitions	—			—			—			—
Sales	—			—			—			—
Amortization	—			2,315			7			2,322
Other⁽¹⁾	(220)			(2,912)			(6,927)			(10,059)
Transfers into Level 3⁽²⁾	—			—			—			—
Transfers out of Level 3⁽²⁾	—			—			—			—
Balance at June 30, 2019	$	13,203		$	79,078		$	570,171		$	662,452
Percent of total fixed maturities	—		%	1		%	3		%	4		%

(1)Includes capitalized interest, foreign exchange adjustments, and principal repayments.

The following table presents changes in unrealized gains or (losses) for the period included in other comprehensive income for assets held at the end of the reporting period for Level 3s:


	Changes in Unrealized Gains/Losses included in Other Comprehensive Income for Assets Held at the End of the Period
	Asset- backed Securities		Collateralized Debt Obligations		Corporates		Total
At June 30, 2020	$	(250)	$	(5,046)	$	11,765	$	6,469
At June 30, 2019	441		6,306		23,620		30,367

Unrealized Loss Analysis: The following table discloses information about fixed maturities available for sale in an unrealized loss position.


	Less than Twelve Months	Twelve Months or Longer	Total
Number of issues (CUSIPs) held:
As of June 30, 2020	102	35	137
As of December 31, 2019	82	51	133

Globe Life's entire fixed maturity portfolio consisted of 1,731 issues by 711 different issuers at June 30, 2020 and 1,633 issues by 656 different issuers at December 31, 2019. The weighted-average quality rating of all unrealized loss positions at amortized cost as of June 30, 2020 was BB+ compared with BBB- as of December 31, 2019.

The following table discloses unrealized investment losses by class and major sector of fixed maturities available for sale for which an allowance for credit losses has not been recorded at June 30, 2020.

Analysis of Gross Unrealized Investment Losses


	At June 30, 2020
	Less than Twelve Months						Twelve Months or Longer						Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Fixed maturities available for sale:
Investment grade securities:
U.S. Government direct, guaranteed, and government-sponsored enterprises	$	—	$	—	$	1,968	$	(58)	$	1,968	$	(58)
States, municipalities and political subdivisions	21,170		(478)		—		—		21,170		(478)
Foreign governments	4,690		(17)		—		—		4,690		(17)
Corporates, by sector:
Financial	205,161		(10,765)		5,594		(2,906)		210,755		(13,671)
Utilities	—		—		—		—		—		—
Energy	299,831		(23,252)		1,736		(212)		301,567		(23,464)
Other corporate sectors	106,389		(7,081)		17,844		(155)		124,233		(7,236)
Total corporates	611,381		(41,098)		25,174		(3,273)		636,555		(44,371)

Other asset-backed securities	47,730		(5,642)		8		—		47,738		(5,642)
Total investment grade securities	684,971		(47,235)		27,150		(3,331)		712,121		(50,566)

Below investment grade securities:
States, municipalities and political subdivisions	—		—		—		—		—		—

Corporates, by sector:
Financial	33,256		(6,676)		99,492		(33,217)		132,748		(39,893)
Utilities	11,387		(246)		14,307		(1,370)		25,694		(1,616)
Energy	62,252		(8,099)		55,653		(22,298)		117,905		(30,397)
Other corporate sectors	33,629		(2,741)		68,808		(11,225)		102,437		(13,966)
Total corporates	140,524		(17,762)		238,260		(68,110)		378,784		(85,872)
Collateralized debt obligations	—		—		10,080		(9,920)		10,080		(9,920)
Other asset-backed securities	—		—		12,314		(1,787)		12,314		(1,787)
Total below investment grade securities	140,524		(17,762)		260,654		(79,817)		401,178		(97,579)
Total fixed maturities	$	825,495	$	(64,997)	$	287,804	$	(83,148)	$	1,113,299	$	(148,145)

Gross unrealized losses may fluctuate quarter over quarter due to adverse factors in the market that affect our holdings, such as changes in interest rates or credit spreads. As noted in Note 1, the Company considers many factors when determining whether a credit loss exists. While the Company holds securities that may be in an unrealized loss position from time to time, Globe Life does not intend to sell and it is likely that management will not be required to sell the fixed maturities prior to their anticipated recovery due to the strong cash flows generated by its insurance operations.

The following table discloses unrealized investment losses by class and major sector of fixed maturities available for sale at December 31, 2019. Globe Life considered these investments to be only temporarily impaired.

Analysis of Gross Unrealized Investment Losses


	At December 31, 2019
	Less than Twelve Months						Twelve Months or Longer						Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Fixed maturities available for sale:
Investment grade securities:
U.S. Government direct, guaranteed, and government-sponsored enterprises	$	1,255	$	(2)	$	21,044	$	(294)	$	22,299	$	(296)
States, municipalities and political subdivisions	66,774		(626)		—		—		66,774		(626)
Foreign governments	6,496		(396)		—		—		6,496		(396)
Corporates, by sector:
Financial	117,389		(1,733)		7,183		(1,317)		124,572		(3,050)
Utilities	8,400		(166)		—		—		8,400		(166)
Energy	52,312		(1,058)		1,833		(115)		54,145		(1,173)
Other corporate sectors	136,386		(1,584)		61,473		(3,260)		197,859		(4,844)
Total corporates	314,487		(4,541)		70,489		(4,692)		384,976		(9,233)

Other asset-backed securities	—		—		—		—		—		—
Total investment grade securities	389,012		(5,565)		91,533		(4,986)		480,545		(10,551)

Below investment grade securities:
States, municipalities and political subdivisions	—		—		—		—		—		—

Corporates, by sector:
Financial	—		—		113,481		(19,257)		113,481		(19,257)
Utilities	7,529		(135)		14,985		(1,264)		22,514		(1,399)
Energy	14,968		(146)		69,956		(32,406)		84,924		(32,552)
Other corporate sectors	—		—		67,655		(11,921)		67,655		(11,921)
Total corporates	22,497		(281)		266,077		(64,848)		288,574		(65,129)
Collateralized debt obligations	—		—		12,816		(7,184)		12,816		(7,184)
Other asset-backed securities	—		—		13,879		(371)		13,879		(371)
Total below investment grade securities	22,497		(281)		292,772		(72,403)		315,269		(72,684)
Total fixed maturities	$	411,509	$	(5,846)	$	384,305	$	(77,389)	$	795,814	$	(83,235)

Fixed Maturities, Allowance for Credit Losses: A summary of the activity in the allowance for credit losses is as follows. Based on key factors considered by management, a provision for credit losses of $33 million was recorded for one energy issuer during the six months ended June 30, 2020. Refer to Note 1 for factors considered in the recording of the allowance for credit losses.


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Allowance for credit losses beginning balance	$	31,854	$	—	$	—	$	—
Additions to allowance for which credit losses were not previously recorded	—		—		31,854		—
Additions (reductions) to allowance for fixed maturities that previously had an allowance	865		—		865		—
Reduction of allowance for which the Company intends to sell or more likely than not will be required to sell	—		—		—		—
Allowance for credit losses ending balance	$	32,719	$	—	$	32,719	$	—

As of June 30, 2020 and December 31, 2019, the Company did not have any fixed maturities in non-accrual status.

Other Long-Term Investments: Other long-term investments consist of the following assets:


	June 30, 2020		December 31, 2019

Investment funds	$	264,246	$	185,851
Commercial mortgage loan participations	164,420		137,692
Other	3,659		2,804
Total	$	432,325	$	326,347

The investment funds consist of limited partnerships whereby the Company has a pro-rata share of ownership ranging from 1% to 20%. For each investment, the Company has elected the fair value option, but would have been otherwise accounted for as an equity method investment. The fair value option is assessed for each individual investment and concluded at the inception of the investment. Additionally, each investment is evaluated under ASC 810, Consolidation to determine if it is a variable interest entity and would qualify for consolidation; none of the investments qualify for consolidation as the Company is not the primary beneficiary in any of these investments.

The investments are reported at the Company's pro-rata share of the investment fund's net asset value or its equivalent (NAV) as a practical expedient for fair value. Changes in the net asset value are recorded in Realized gains (losses) on the Condensed Consolidated Statements of Operations. Distributions received from the funds arise from income generated by the underlying investments as well as the liquidation of the underlying investments. Periodic distributions are recorded in net investment income until cumulative distributions exceed our pro-rata share of operating earnings at which point the distributions will reduce the carrying value. Our maximum exposure to loss is equal to the outstanding carrying value and future funding commitments. During the quarter, the Company has not committed to any new limited partnerships. The Company had $100 million of capital called during the quarter from existing investment funds, reducing our unfunded commitments. Our unfunded commitments were $456 million as of June 30, 2020.